Boards are not surprisingly increasingly concerned about ‘getting it wrong’. Broadly speaking that is a good thing as this focus should protect its stakeholders from disastrous outcomes.
However, our board reviews increasingly reveal what we consider to be a disproportionate amount of board time focused on identifying, predicting and eliminating any kind of risk. What do we mean by that? Governance is there to support the delivery of the organisation's purpose and strategy.
Good governance means that a board has high calibre EDs who deliver strategic and operational objectives; suitably qualified independent NEDs who can drive strategy and provide appropriate challenge and scrutiny; and an appropriate landscape of board and sub-committee meetings that ensure money is properly accounted for and spent wisely, good decisions are reached, the organisation is sustainable and stakeholder needs are met now and in the future.
Recent examples of the consequences of bad governance show what happens when these basic disciplines are absent. Usually when something catastrophic happens it is as a result of many of the principles of good governance not being upheld. The better the governance, the more the risk is reduced.
But governance at the expense of vision and strategy is like ‘putting the cart before the horse’. Increasingly governance has become an end in itself and boards are in danger of either losing sight of where they are trying to get to, or becoming so risk averse that they can't move forwards, grow or take advantage of opportunities. It is all very well ensuring that the car engine is in good working order and that you are not breaking speed limits, but you also need to know where you are going, otherwise you will never get there.
If the board is not spending time on strategy and forward looking things, the danger is it becomes a rubber stamping board. A rubber stamping board may have, what are in many respects fantastic governance frameworks, and follow them studiously, but in so doing it may not be fulfilling its key ‘raison d'être’ of ensuring the organisation's current and long term financial success and sustainability. As the saying goes ‘if you have a hammer all you see is nails’. Maybe boards need binoculars as well!
For more information, please contact Judith Nicol, Director of Leadership Services.